Fitch: NBG-Eurobank merger to give medium-term benefits

Fitch Ratings expects that the latest consolidation move in the Greek banking sector, involving the two largest banks, National Bank of Greece and Eurobank Ergasias, will prove beneficial to the new group's credit profile in the medium term, assuming achievement of synergies.
However, in the near term, the risks may outweigh benefits, the rating agency said, adding that it expects Eurobank to merge into NBG following the acquisition of Eurobank by NBG, clearing the way to form Greece's biggest lender with pro-forma assets of EUR 178 bln.
The creation of the NBG-Eurobank group should facilitate a more efficient structure to cope with Greece's weak macro-economic prospects, Fitch said.
“With this transaction, NBG will enlarge its already leading franchise in Greece, widening the gap with its direct peers which have also been involved in consolidation moves, albeit on a lower scale.”
According to NBG, the new group's pro-forma market shares will be about 32% for loans and 36% for deposits. Fitch expects the group's strong domestic franchise to eventually lead to an enhanced deposit base and to enable a lowering of retail funding cost over time.
The new group will also benefit from a strengthened international footprint, particularly in South-East Europe and Cyprus, where both NBG and Eurobank have had a presence for some time.
However, Fitch notes that challenges related to the NBG-Eurobank merger are greater than those faced by other Greek banks that have played a role in the Greek banking sector consolidation process. This is due to the two banks' relatively large size and significant overlap in resources and risks, which results in larger integration and execution risks. Added to these concerns, both banks' funding pressures will persist, at least in the near term, and the merger comes at a time when the two banks also need to meet restructuring requirements under the recapitalisation processes.
Both NBG and Eurobank have been provided with sizeable capital support (EUR 9.8 bln and 5.8 bln, respectively) by the Hellenic Financial Stability Fund (HFSF) following the capital needs assessment conducted by the Bank of Greece in 2012.
The new group expects to realise EUR 570-630 mln of synergies per year, centred on cost and funding synergies, to be fully phased-in within the next three years.
Fitch expects the new group's credit profile to suffer from increased concentration levels and continued asset quality deterioration. Finally, execution risks could be exacerbated by the poor operating environment, the banks' differing corporate cultures, and union resistance that could make it difficult to achieve cost synergies.